Is Standard Chartered The Ultimate Retirement Share?

Published in Company Comment on 1 August 2012

Will shares in Standard Chartered help you build a FTSE-beating retirement fund?

The last five years have been tough for those in retirement. Portfolio valuations have been hammered and annuity rates have plunged. There's no sign of things improving anytime soon, either, as the eurozone and the UK economy look set to muddle through at best for some years to come.

A great way of protecting yourself from the downturn, however, is by building your retirement fund with shares of large, well-run companies that should grow their earnings steadily over the coming decades. Over time, such investments ought to result in rising dividends and inflation-beating capital growth.

In this series, I'm tracking down the UK large-caps that have the potential to beat the FTSE 100 (UKX) over the long term and support a lower-risk income-generating retirement fund.

Today, I'm going to take a look at Standard Chartered (LSE: STAN), a London-listed bank that does the vast majority of its business in Asia, the Middle East and Africa.

Unblemished record?

Standard Chartered's overseas focus means it has escaped the worst of the effects of the credit crunch and has remained profitable and focused on growth. This has helped it perform strongly against the FTSE 100 over the last 10 years:

Total Return20072008200920102011Trailing 10 yr avg.
Standard Chartered26.1%-51.0%84.8%12.4%-15.8%10.9%
FTSE 1007.4%-28.3%27.3%12.6%-2.2%6.9%

Source: Morningstar

(Total return includes both changes to the share price and reinvested dividends. These two ingredients combined are what make it possible for equity portfolios to regularly outperform cash and bonds over the long term.)

Standard Chartered's trailing 10-year average total return shows that it has delivered superior returns to the FTSE 100 despite the credit crunch; an achievement that no other UK bank, not even its Asian peer HSBC Holdings (LSE: HSBA), has managed. A sharp downturn in Asia could hurt it more than other major UK banks, but good cost control and profitability should help protect it.

What's The Score?

To help me pinpoint suitable investments, I like to score companies on key financial metrics that highlight the characteristics I look for in a retirement share. Let's see how Standard Chartered shapes up:

Year founded1969*
Market cap£36bn
Net debtn/a
Dividend Yield3.3%
5 year average financials
Operating margin23.4%
Interest covern/a
EPS growth11.0%
Dividend growth7.6%
Dividend cover2.8x

Source: Morningstar, Digital Look, Standard Chartered

*Standard Chartered was formed when Standard Bank and Chartered Bank merged. Both had been in business since the mid-19th century.

Here's how I've scored Standard Chartered on each of these criteria:

LongevityMore than 150 years of banking experience in Asia, the Middle East and Africa.5/5
Performance vs. FTSEStrong performer against the FTSE, has also avoided LIBOR and other scandals that have afflicted its UK peers.4/5
Financial strengthMore profitable than many and with diversified income.4/5
EPS growthEarnings growth is respectable and should be sustainable.4/5
Dividend growthA lower yield than some but healthy growth and sensible levels of cover.3/5

Total: 20/25

Standard Chartered released its interim results today and the bank's CEO Peter Sands commented that "we see some virtue in being boring." This philosophy could work well for a retirement portfolio and a score of 20/25 suggests that dull but reliable Standard Chartered could be an excellent candidate for a retirement fund portfolio.

Expert selections

Banking shares -- including Standard Chartered -- collapsed in value when the credit crunch struck in 2008. However, the warning signs were there and one investor who paid attention and sold all of his banking shares before prices fell was city manager Neil Woodford, who manages £20bn of private investors' money.

Mr Woodford's skilled and careful approach is one of the reasons that his dividend stock picks have outperformed the wider index by a staggering 305% over the last 15 years. He is still cautious about banking stocks and prefers to put his money elsewhere. At the last count, eight shares in three key sectors accounted for a massive 47% of his funds.

The good news is that you can learn about Neil Woodford's top holdings and how he generates such fantastic profits in this free Motley Fool report. Many of Mr Woodford's choices look like excellent retirement shares to me and the report explains how he chose some of his biggest holdings.

This report is completely free and I strongly recommend you download"8 Shares Held By Britain's Super Investor" today, as it is available for a limited time only.

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Further investment opportunities:

> Roland owns shares in HSBC but does not own shares in Standard Chartered. The Motley Fool owns shares in Standard Chartered.

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The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

alarmbells 01 Aug 2012 , 6:46pm

Roland, dear boy. Today this, yesterday BP. At this rate you'll have discussed every blooming share in the index within a few months. Spare us the crud, get straight to the point and discuss the flaming shares that are the ULTIMATE RETIREMENT SHARE(S). In fact why call this series the ultimate retirement sharE when the conclusions are that either it does or doesn't form part of a portfolio of SHARES - not share.

ealesd 07 Aug 2012 , 2:02pm

Great timing I must say...

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